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1. what this note covers

This note covers our approach to the valuation of a vehicle which is treated as a total loss (known as a "write-off") because either:

the insurer considers the vehicle uneconomical to repair; or

the vehicle has been stolen and is never found.

Most motor policies only require the insurer to compensate the policyholder for the market value of the vehicle immediately before the damage or theft. Consumers refer complaints to us when they think the vehicle is worth more than the insurer has offered.

A typical case might be where an insurer has "written-off" a vehicle and offered £8,000. The consumer complains because they paid £13,000 for the vehicle only 18 months before the accident, and have recently seen similar vehicles advertised for £10,000. The consumer also says that the insurer asked them what the vehicle's value was when they took out the policy – and that is the amount they want.

In a very small number of cases, an “agreed-value” policy requires the insurer to pay a previously-agreed amount. But such policies are unusual and tend to be used for "classic" cars. The fact that the insurer’s proposal form asked the consumer to state the vehicle’s value does not, in itself, make it an agreed-value policy.

2. our general approach

In most cases, we assess the market value as the retail price which the consumer would have had to pay for a comparable vehicle at a reputable dealer, immediately before the date of the damage or theft.

This may be lower than the price at which the vehicle is advertised, as the dealer may have built in a margin for negotiation. It is likely to be higher than the price payable in a private sale or at an auction and also higher than the trade value (which is the price a dealer would pay before adding its mark-up).
We are likely to award the consumer the full retail value – even if they inadvertently underestimated the value of the vehicle when filling in the proposal form or luckily bought the vehicle for less than it was worth. And we have seen exceptional cases where a vehicle’s value genuinely rose between the date it was bought and the date of the damage or theft.

Sometimes we find the consumer overestimated the value of the vehicle when filling in the proposal form or the claim form. But that is not relevant to valuing the vehicle for the purpose of the claim – so we are still likely to award the actual retail value.

Assessing the value of a used vehicle is not an exact science – though we take all relevant evidence into account to make sure we are as consistent as possible:

We pay most attention to valuations given in motor-trade guides, such as Parkers’, Glass’s and CAP. These are based on extensive nationwide research of actual selling prices (rather than just advertised prices).

Evidence from an independent engineer can be helpful, if available – particularly where the vehicle is not a standard one (for example, because it has been heavily modified).

We may also use evidence from an insurer’s engineer – but we will need to assess the content and independence of the report.

We do not usually find advertisements for similar vehicles very persuasive. A vehicle may often be sold for less than the advertised price – and differences in mileage, year of registration, model type etc can significantly affect the value.

We are unlikely to uphold a complaint where the insurer has offered the consumer a fair value within a reasonable time and in accordance with the motor trade guides – unless the policy said it would provide a particular amount (an “agreed-value” policy – see below).

3. agreed-value policies

Agreed-value policies are not common. They usually relate to valuable or "classic" vehicles where the consumer has an investment to protect and the vehicle's value is unlikely to depreciate substantially – if at all. The insurer will have assessed the premium on the basis of the vehicle's agreed value and is obliged to pay that amount if the vehicle is "written off".

Confusion can arise where a consumer believes they have an “agreed-value” policy because the proposal form asked them to state the vehicle’s value and/or because the policy schedule shows a value for the vehicle (usually based on the value in the proposal form). In these cases, the policy will usually just be an ordinary "market value" policy. We understand insurers ask about a vehicle’s value for other reasons (for example, to help detect fraud) – but it is not surprising that consumers sometimes think the information is relevant to the claim.

4. vehicle details

When we take on a case, we will first of all check that the model, age, condition and mileage of the vehicle – and the date of the damage or loss – have been recorded correctly. Insurers and/or consumers can get these wrong.

The model and age can be checked in the vehicle registration document (V5) issued by the Driver and Vehicle Licensing Agency (DVLA). The insurer usually has a copy of this on the claim file. If not, then we may ask the policyholder for the original.

The value of a vehicle is affected by the recorded mileage. If a vehicle is found to have had its mileage unlawfully lowered (or “clocked”) its value will be reduced to that of a vehicle with the true mileage.

If we think that the consumer was not aware that the mileage had been “clocked” when they bought and insured the vehicle, we usually say that it is unfair for the insurer to pay less than the full market value of a vehicle with the mileage the consumer believed was correct.

5. motor trade-guides

Next, we check the motor trade-guides. We have access to Parkers’s guide – available to the general public – and Glass’s guide and CAP's Market Value Manager, which are available to insurers but not to the general public. Valuation is not an exact science – and the figures can differ considerably from one guide to another.

Because we need to assess the vehicle’s market value immediately before the incident, we ensure that the incident date is used and not the date the complaint is made. We generally assume that the vehicle was in good condition with average mileage – unless we see evidence suggesting otherwise.

older vehicles

Some motor trade-guides publish editions specifically relating to older used vehicles. The guide prices and fair market value should take account of fair wear and tear – which over time may include minor damage. This means that presence of minor rust, dents, or a higher mileage, is less likely to detract from the guide price than might be the case with newer used vehicles.

6. if the guides show different values

Our general approach is to consider whether the insurer's offer is a reasonable one in the light of valuations from the three guides.

If the figure in one guide is significantly out of line with the other two, we are likely to disregard the out-of-line figure – whether it is higher or lower. We are unlikely to decide that the insurer’s offer is reasonable if it is based on, or takes into account, a significantly lower figure.

For example, where the insurer offered £7,000 in line with guide A:

if guide B gives a figure of £7,000 also, but guide C gives a figure of £7,500, we are likely to consider the offer reasonable – because it is generally in line with of the range of values contained in the three guides;

if guide B gives a figure of £6,800 and guide C gives a figure of £7,200, we are likely to consider the offer reasonable – because the differences are not significant;

if both guide B and guide C give a figure of £8,000, we are likely to consider the offer is less than reasonable – because it is significantly out of line with two of the three guides.

What is considered a “significant” difference will vary with the value of the vehicle. A variation of £200 may be insignificant for a vehicle worth about £7,000 – but significant for a vehicle only worth about £1,000. A variation of £100 or less will not usually be significant.

7. engineer's reports

An engineer’s report can be useful evidence – from someone who has actually inspected the vehicle – of what its precise details are. We will look to see if this is available to help assess the fair market value of the vehicle. Good quality photographs can be helpful where it is suggested that the vehicle’s condition was either below or above average. We are unlikely to be persuaded where deductions are made without explanation by the engineer. And where a vehicle has been heavily modified, there may be a specialist market for it – which could affect its value (upwards or downwards).

8. advertisements

Vehicles are often sold for less than the advertised price – and differences in mileage, the year of registration, model type etc can significantly affect their value.

This means that generally – although they can be helpful in some cases – advertisements for similar vehicles are not particularly useful when deciding complaints.

In a few cases, however, the vehicle does not feature in the readily-available guides – so advertisements may be the only evidence of the vehicle’s value available to us. Examples include vehicles with foreign specifications which have been personally imported into the UK.

9. vehicles recently purchased second-hand

If the consumer only recently bought their car second-hand, we generally assume that they paid the market value price – although we will consider any evidence the insurer can provide that this was not the case.

10. "new for old" seldom applies

Most motor insurance policies require the insurer to provide a new replacement only where the vehicle is written-off within a specified time – typically 12 months – after the date of first registration. But after that period, policies rarely require the insurer to provide a new replacement.
If the vehicle was pre-registered by the dealer before it was bought by the consumer, we usually treat the vehicle as if it was first registered when it was first sold by that dealer.

In some cases, the policy says that the insurer will provide a replacement vehicle – but the consumer is asking for cash instead. Here, we generally say that the insurer should only pay the consumer cash to the amount the replacement would have cost the insurer – rather to than the full retail price that the policyholder would need to buy a replacement vehicle themselves.

Some policies include a "new vehicle provision" stating that the insurer is only liable to provide a new vehicle if the same make and model – and sometimes specification – is still available in the UK market.

If such a vehicle is no longer available, we are unlikely to agree with an insurer’s decision to pay the consumer less than what it would have paid to replace the vehicle with a new one had it been available. Sometimes an insurer may offer the next model up in the range and we are likely to consider this to be fair.

We would usually decide that it is fair for an insurer to pay the original new price of the vehicle that was written-off if it is the only way that a policyholder can buy the nearest equivalent new replacement.

11. accessories and other unusual features

It is sometimes thought that any money a consumer has spent on the vehicle since buying it – for example, on accessories or other special features they have added – will increase the value of the vehicle.

But generally, we think it is unlikely that such additions will make an overall difference. This is because:

Money the consumer has spent on maintenance generally just keeps the vehicle in retail condition – rather than increasing its value. In fact, if money is not spent on maintaining the vehicle, it may be valued at less than the guide price.

Adding accessories such as satellite navigation or improved radio/CD equipment can increase the vehicle’s value – but not necessarily by as much as the amount the consumer spent on the additions.

Features such as special paint schemes, stripes or spoilers may increase a vehicle’s value – but may decrease it in the eyes of some potential buyers.

Very occasionally, we may decide that the particular quality of an accessory – or another unusual feature like a famous former owner – would be likely to increase the vehicle’s value. But such vehicles are often specially insured through an “agreed-value” policy (explained above).

12. left-hand-drive vehicles

The full retail value is based on a vehicle designed for the UK market – with the steering wheel on right-hand side. Left-hand-drive vehicles are usually worth less in the UK market – and we are likely to consider it fair for an insurer to deduct up to 10%.

In a few cases involving "classic" cars, a deduction will not be appropriate. For example, a 1950s Cadillac will appeal to a specialist market. The lack of right-hand drive is very unlikely to diminish its value – in fact, this authentic feature may be part of the appeal.

13. roadworthiness

Most motor policies contain a specific requirement that the vehicle must be maintained in a roadworthy state. When deciding whether it was reasonable for an insurer to reject a consumer’s claim, we will look for evidence that the loss or damage was mostly likely caused – or was significantly contributed to – because the vehicle was not roadworthy.

An insurer can also reduce a payout on the basis that the vehicle was not in good condition. In these cases, we will look for evidence that the condition of the condition of the vehicle – or parts of it – were poor to decide whether this deduction is fair.

If the vehicle did not have a current MOT certificate, we will consider how likely it was that the vehicle would have passed an MOT test. If we decide – on the balance of probabilities – that the vehicle would have failed the test, we are likely to say that a deduction of up to 10% is reasonable.

14. vehicles previously "written-off" and then repaired

The fact a vehicle has been previously "written off" can put off potential buyers, no matter how well it was later repaired. This can affect its value.

If the consumer knew they were buying a repaired write-off, they are likely to have paid less for it. In these cases, we may decide it is fair for the insurer to make an appropriate deduction – generally not more than 20% unless the insurer can provide evidence to warrant a higher deduction.

But a consumer who unknowingly bought and insured a previously written-off vehicle is likely to have paid full price for it – and a full insurance premium. If we think it is likely the consumer did not know the vehicle’s history – and the repairs were not obviously noticeable – we are unlikely to agree that the insurer should pay less than the full market value.

15. loss of use and courtesy cars

Generally, the policy in question will specify whether the consumer is entitled to a courtesy car. But even if it does, a courtesy car will usually only be provided in limited circumstances – for example, whilst repairs are carried out by a repairer approved by the insurer. A courtesy car is not usually provided if the vehicle is "written off" but the consumer is not always aware of this limitation.

We may tell the insurer to pay the consumer compensation for loss of use of the vehicle if we decide it has unreasonably delayed or wrongly declined the claim. There is more information about our approach to awarding compensation to consumers deprived of the use of their vehicle in our note motor insurance: compensation for “loss of use”.

16. salvage of the "written-off" vehicle and contents

When a vehicle is “written off”, the insurer becomes the owner of the salvage once the consumer accepts payment of the full market value. If the consumer asks to keep the salvage, the insurer is entitled to deduct what it would have been able to sell the salvage for – though this is usually not very much.

Consumers sometimes complain that the insurer (or its agent) disposed of the salvage before paying the full market-value. At this stage, the vehicle still belongs to the consumer, so we look to see if the insurer asked the consumer’s to the settlement of the claim – even if the insurer says it was only acting in the public interest by keeping a badly-damaged vehicle off the road.

If we find the insurer disposed of the vehicle without the consumer’s consent and there were items belonging to the consumer inside, we are likely to tell the insurer to pay the cost of replacing these – usually on a like-for-like (rather than a new-for-old) basis.

If we think that the policyholder was unfairly deprived of the salvage, we may tell the insurer to pay compensation for any financial loss or distress and inconvenience we think the consumer has experienced.

17. outstanding premium instalments or premium refunds

Most motor insurance policies are yearly contracts – so the full premium is payable even if the vehicle is written off during the year. If the consumer paid the yearly premium upfront, they will not receive any refund. Or if the consumer was paying the yearly premium by monthly instalments, they must still pay the outstanding instalments after the vehicle is written off.

When an insurer declares a vehicle a write-off, we expect it to offer a consumer the option of bringing a replacement vehicle onto the insurance policy so that the remainder of the policy term can be used. Depending on the make and model of the replacement vehicle, an additional premium may be required by the insurer. This should be calculated on a pro rata basis for the remainder of the policy term.

18. excess

An insurance policy will usually state an “excess” amount which the consumer must bear personally – for example, the first £100 of any claim. So the insurer is entitled to deduct the excess from the market value.

The deduction can vary depending on who was driving – for example, the insurance policy for a family car may have an excess of £100 when the car is driven by one of the parents and an excess of £500 when it is driven by any of their children under the age of 21.

The excess is usually set when the policy is taken out – although the consumer can sometimes ask for it to be increased to lower their premiums. When a consumer complains that an excess is too high, we generally say that the insurer’s decision about the excess is a reasonable exercise of commercial judgment.

However, we will look at what information was provided to the consumer when the policy was sold to establish whether the excess was brought to their attention. And if we find that it was not, we will assess whether the consumer lost out as a result.

19. interest on the amount of the claim

When we uphold a complaint, we usually tell the insurer to pay the consumer interest on the amount of the claim – calculated from the date of the incident to the date of payment (not from the date of the claim).

This is because the consumer has not had the use of the vehicle – but the insurer has had the use of the money. The rate is likely to be 8% per year simple, though the law may require the insurer to deduct tax from the interest.

useful external links

The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time.
We do not have power to make rules for financial businesses.
Our current approach may develop in the light of circumstances disclosed by further cases we receive.
We may decide that fairness requires a different approach in a particular case.